Diversification key to survival of exporting companies – WB

Despite the growth of exports receipts in the last decade, stakeholders are worried that low survival rates of exporting firms is slowing the country’s growth targets.
Sorgo makes a presentation during the meeting. Timothy Kisambira.
Sorgo makes a presentation during the meeting. Timothy Kisambira.

Despite the growth of exports receipts in the last decade, stakeholders are worried that low survival rates of exporting firms is slowing the country’s growth targets.

Exports receipts have grown four-fold in the last decade from $400 million in 2007 and $1.6 billion in 2016.

 

However, statistics show that there is a challenge with the growth and survival of small exporting firms.

 

The 10th report of the World Bank Rwanda Economic Update, released on Wednesday, shows that the local exporting sector is increasingly characterised by a high entry and exit rates.

 

Though the sector has been performing well in recent years, experts say that the lack of sustainability plans is slowing the country’s efforts to achieve its export targets.

Hamidou Sorgo, a senior private sector specialist at the World Bank recommends that Rwanda should look into the reasons behind the low survival rates and address them to achieve export led growth targets.

“What the data tells us is that 60 per cent of the firms that export from Rwanda in a given year were not exporting in the previous year and 50 per cent of the firms that are exporting will not be exporting the following year,” Sorgo said, adding that the 30 per cent of survival rate in a given year needs attention.

This is despite having a high number of exporters compared to other countries in the region.

“Looking at the firm level data, in Rwanda you have a higher number of exporters compared to other countries with the same level of development and GDP,” he added.

Other factors that continue to pose a challenge to the growth of exports is the low levels of diversification of products and markets.

Most of the firms only serve the East African region and DR Congo.

“You will see that exports are less diversified in Rwanda. Over 60 per cent are single product for single destinations. Other countries in the region export more products to more destinations compared to Rwanda,” Sorgo pointed out.

Another characteristic of the exporting firms that probably needs to change is the high level of concentration.

“What we also see is that there is a high level of concentration where top 5 per cent of the firms are exporting nearly 80 per cent of the produce,” the World Bank economist said.

Recommendations

Rwanda Development Board chief operating officer Emmanuel Hategeka confirmed this, saying that out of thousands of firms, only 65 companies bring in over 80 per cent of export revenues.

“When you look at the companies that are exporting, they are in their thousands but only about 65 companies bring in over 80 per cent of revenues,” Hategeka said.

Among the recommendations by economists is maintaining focus on specific sectors that have shown potential such as agriculture and manufacturing.

The World Bank also recommended maintaining efforts to reduce the cost of exports for SMEs.

Hategeka said that the government is aware and working to get past the hurdles, including encouraging exporters to diversify.

“The most sustainable way of getting foreign exchange is via exports. As our market grows, it is important for our firms to look at other markets,” he said.

“Diversification is key in exports. Rwanda has been exporting traditional products; minerals, coffee and tea. Over the last decade, we have been moving into non-traditional exports.

“Now we have close to $200 million from non-traditional exports from manufacturing, agriculture, horticulture. These are the new exportable products,” Hategeka said.

RDB is also keen to develop the capacity of local SMEs to cut on the high concentration as well as improve survival rates.

“It is not about pushing SMEs to export, SMEs are good for job creation but when it comes to sustainable exports and sustaining the markets which we operate in, size matters,” Hategeka added.

Other interventions that Hategeka said they are rolling out include providing quality and affordable infrastructure at the special economic zone, investing in air cargo as well as reducing the price of air cargo.

The Government will continue addressing constraints through the exports finance facility provided by BRD as well as developing export plans and implementing them.

World Bank country manager Yasser El Gammal said it is imperative to have an export-led orientation for the country to meet its growth objectives and targets.

He said that from trends of countries across the world over the last two or three decades, those with export led growth tend to grow sustainably compared to those that do not.

editorial@newtimes.co.rw

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